Subway on a decline

Subway, the fast food giant with 43,945 shops in 110 countries, have made themselves known as the most ubiquitous restaurant chain, with legions of “sandwich artists” in more American locations than McDonalds and Starbucks combined.

Yet reaching its half a millennia celebration, all isn’t well in the land of “freshness” and $5 footlongs. Subway’s U.S. sales last year declined by 3% ($400 Million) falling faster than any other of the state’s top 25 food chains. The glorified deli was also knocked into America’s third best-selling food chain for the first time in seven years. (In other words, they’re not faring too well, which isn’t coming as a shock, while people are turning to healthier, and cheaper alternatives).

Subway made its ascension over the last several decades, at the back of the line of American favourites, offing a “healthy” alternative for people who had grown weary of fast food, and with prices that made it unstoppable during the Great Recession. The company was even praised by First Lady Michelle Obama during a visit in 2014, for “working to get kids excited about eating their vegetables.”

But in an industry it helped create, the newer chains that rose from the coat tails of Subway like Chipotle Mexican Grill, and Firehouse Subs are beating their light in the darkness at its own game, offering seemingly fresher, healthier build –your-own meals.

Fast food diners are becoming louder in their statement that they want to know their meat has been cut fresh, rather than peeled off of wax paper, and that their meal is being heated by steamer, not microwave.

This leads to what many analysts are saying is the sandwich empire’s greatest threat yet: What consumers see as healthy has evolved, Subway hasn’t.

“The ‘Subway fresh’ has lost its appeal with consumers, because to them fresh has evolved to mean something very different,” said Darren Tristiano, executive VP of industry researcher Technomic. And can you blame them? I for one know that when I hear the word fresh, I imagine it in the most literal of senses, toppings being cared for in prime conditions, not being kept in a box in the back of a cooler waiting to be dug out, and meats that aren’t filled with preservatives, and empty calories. “More people have money to spend, and they’re choosing to spend a little bit more on better concepts where thye get a better product… Subway’s strategy has only been to open more stores, and ultimately those stores just cannibalize each other.”

The Milford, Conn.-based Subway’s problems are running close to those of fellow fast food king McDonald’s, the sagging-sales chain now launching a turnaround because of “challenging industry dynamics” and changing tastes. I for one think that what McDonald’s is doing is quite smart, considering what choices people are making, having menus to build-your-own meal and better product provided is a costly, yet necessary move that the aging fast food giants need to see themselves making.

That being said, Subway’s money0-making issues seem to be sharper than that of the Golden Arches, with the average Subway selling $437,000 worth of subs, sodas, and cookies last year, the smallest income in half a decade, and about a fifth as much as an average McDon’s, which pull in roughly $2.4 million per store.

Subway’s director of research and development Tricia Hetherington, said in a statement, “We’ll continue to evolve our reasonably priced, fresh, customizable sandwiches and salads to better meet our customers tastes and needs.” Subway, which is privately run and closely held, would not comment further.

The giant debuted as Pete’s Super Submarines in Bridgeport, Conn., in the summer of ’65, when a Brooklyn-born 17-year-old named Fred DeLuca borrowed $1,000 from a family friend, a doctor named Peter Buck. DeLuca, an aspiring doctor whose net worth is now $2.6 billion, hoped that slinging designer sandwiches would help him pay his way through med school.

The duo slogged through several slow, painstaking years of sandwich-making until, in ’74, they started selling franchises under a new name, Subway. (One theory: the old name, on radio ads, sounded confusingly similar to “Pizza Marines.”) I don’t think that people are going to find Pizza Marines faster then they’ll find Pete’s Super Submarines, as fun a name as that sounds.

In the following decades, Subway franchises have expanded exponentially, onto what seemed like every street, strip mall and major mall in Canada and the United States. By 2013, Subway was opening 50 shops a week, filled with “fresh” product and a battalion of “sandwich artists” and today, Subways across the world serve nearly 2,800 sandwiches/min. according to IBISWorld.

With it still owned by Doctor’s Associates, Subway functions inside Hundreds of U.S. colleges, malls military bases and other less-predictable locations: a car showroom in California, a Goodwill thrift store in South Carolina, and even a church in Buffalo. Canada isn’t as generous with Sandwich based real estate though, with Subways open in many Colleges and universities, but nowhere to be seen in churches, military bases, and re-retail stores. (The Timmies are in the military bases, for those of you wondering.)

At 1 World Trade Center, a Subway housed in an American Flag-adorned trailer was hoisted form floor to floor to serve construction workers working on building the Freedom Tower. Franchise owner Richard Schragger, who beat nine other competing bidders for the honour, served the signature sandwiches alongside hotdogs and ice cream.

DeLuca, the chief executive said last year that the chain wanted to add 8,000 new American franchises to their existing 27,000, and explosion on par with adding the combined store count of Taco Bell and Chipotle.

“We’re continually looking at just about any opportunity for someone to buy a sandwich, wherever that might be,” the Chief Development Officer, Don Fertman told the Wall Street Journal last year. “The closer we can get to the customer the better.”

The chain got one of its largest boosts in Washington in ’77, when Larry Feldman, then an assistant minority counsel to the House Banking Committee, opened one of the earliest franchise near a House office building.

The Development Corp. run by Feldman, has grown to 1,500 locations across the District and mid-Atlantic states, and Feldman, the “secretary of sandwich,” has been called Subway’s most successful “development agent”

DeLuca told the Washington post in 2008, that “The reason Larry Feldman got such a huge territory was is basic answer was, ‘Yes. I will do that,’ It’s like free land. Here is a bunch of acres for your ranch, now go do it.

Subway’s spread was soon conquering a bigger idea than American strip malls: Its airwaves. The chain spent $500 million in 2013 alone, on promotional spots. More than such prodigious advertisers as Progressive or Budweiser.

The chain has excelled at its almost aggressive use of product placement: In a 2012 episode of CBS’s Hawaii Five-O, an actor called Subway “serious culinary fusion” and said its food would help him lose weight, adding, “It worked for Jared, and that dude was large” Although, I have quite a few reservations on the ability for a Subway diet to help you lose weight, it seems to me that it would be about as useful as eating McDonald’s almost exclusively with a goal of lowering your cholesterol. But the all-franchise chain expanded largely through winning over new franchises, who run (and fun) their stores mostly independently of the corporate office, with a 3% growth, opening two subways a day last year.

This is to be accepted though, due to the low cost of opening a Subway ($116,000) a tenth as much as opening a McDonald’s. That being said, some franchisees aren’t happy once their locations are finally up and running, with franchise polling and review service; Franchise Grade, ranking Subway #468 in their latest report, with firehouse subs and Jersey Mike’s Subs at #107 and #108. Analysts are pointing the finger to discounted prices for existing franchises, some of which being purchased for almost the same price of that of a car, as a sign that some owners want out. With sandwich sales shrinking, pressure on franchisees has increased quite a bit.

“We would love to be in a position where we could pay workers more,” Keith Miller, a franchise owner in California and head of the Coalition of Franchisee Associations, said during a conference call with reporters last month to discuss the frustrations of franchisees of Subway and other chains. Don’t kidd yourself in thinking that Subway is the only chain that’s struggling, it seems to be the event of the year.

Franchisees have trouble boosting wages, Miller said, because they are under “extreme pressure” to keep the profits pumping amid sliding sales and the cost of keeping up with changing ingredients and menus, luckily for Subway HQ, these cost pressures have little direct effect, with franchisees paying a $15,000 start-up fee, plus a 12% weekly cut of all revenues, no matter how well the business is doing.

As many of you know, Subway is known for its reputation of being the “healthier” fast food joint, but don’t forget that it also sells a foot-long Big Philly Cheesesteak, packing 1,000 calories, twice as many as a Big Mac – helping it torpedo past its fast food counterparts, 15 years after first tapping Jared Fogle, “the Subway Guy”

But even with their vegetarian-friendly menu, Subway has been struggling greatly to maintain a healthful image. Consumer surveys conducted by Technomic found that the sandwich giant’s food taste, flavor and visual appeal sagged among American respondents in the past year.

“In light of the intense competitive pressure from other sandwich concepts,” said colleen Rothman, a Technomic manager of consumer insights, “Subway’s offerings just aren’t resonating with consumers as they used to.”

Will Subway be able to make a comeback? I for one doubt this is the last we’ll be seeing of the sandwich giant, but times are changing and the reality is becoming ever more clear to us.

About Nick Thornton

Nick Thornton is a talented freelance writer based in Ottawa. He writes for several blogs and news sources. He has lot's of hobbies, such as reading, writing, exploring various coffee shops and bars across Ottawa, and enjoying live music. His writing is always easy & fun read as he delivers hard hitting news, and only the truth.
Contact Nick: nick.thornton@youthindependent.com